浙江财经学院课程期末考试试卷
D) Positive slope because a higher interest rate leads to a decrease in
aggregate demand and thus a higher money supply is needed for equilibrium.
25. Official intervention in the foreign exchange market to defend a fixed exchange rate when the value of domestic currency is under downward pressure:
A） Causes international reserve holdings to rise. B） Has no impact on the domestic money supply. C） Causes the domestic money supply to rise. D） Causes the domestic money supply to fall.
26. Floating exchange rates ensure:
A) Full employment domestically. B) Domestic price stability.
C) Equilibrium in the overall balance of payments. D) A surplus in the trade balance.
27. There are limits to the ability of monetary authorities to use sterilized intervention in the case of a surplus because:
A) The central bank may be unwilling to increase its holdings of foreign
currency.
B) Pressure from foreign countries to allow the domestic currency to
depreciate will lead to large losses.
C) The central bank is limited in its ability to obtain foreign currency. D) There are no limits on the use of sterilized intervention.
28. Under a floating exchange rate regime, following an expansion in the money supply, monetary authorities will:
A) Buy foreign currency in the foreign exchange market. B) Buy domestic currency in the foreign exchange market. C) Do nothing in the foreign exchange market.
D) Sell domestic currency in the foreign exchange market.
29.Given the IS-LM-FE framework and an overall payments balance of zero, if the country implements expansionary monetary policy, the LM curve will shift to the __________ which will lead to the country's currency __________. In response, the FE and IS curves will shift to the __________ and external balance will be reestablished.
A) left; appreciating; right B) left; depreciating; left C) right; depreciating; right D) right; appreciating; right
30. Under a floating exchange rate regime with a low degree of capital mobility, expansionary fiscal policy will lead to:
A) Higher interest rates. B) Lower interest rates. C) Capital outflows.
D) A surplus in the official settlements balance.
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浙江财经学院课程期末考试试卷
Part II, True or False (10*1.5=15 score)
( T for true and F For false, you are not required to give reason for your choice) 1.If a currency is at a forward premium by as much as its interest rate is lower than the interest rate in the other country, covered interest parity holds.
2. Contractionary fiscal policy with floating exchange rates and low capital mobility leads to currency depreciation.
3. Over the long-run, a country with a relatively high inflation rate tends to have a depreciating currency.
4. The quantity theory of money says that in any country the money supply is
equated to the demand for money, which is directly proportional to the money value of the gross domestic product.
5. With fixed exchange rates, external capital flow shocks have little impact on the internal economy.
6. The Bretton Woods conference created the International Monetary Fund (IMF). 7. The official settlements balance is in deficit if the IS-LM intersection is to the right of the FE curve.
8. (Pf*e / P) is a useful indicator of a country’s international price competitiveness. 9. The assignment rule says that, with fixed exchange rates, fiscal policy should be assigned to stabilizing the balance of payments and monetary policy should be assigned to stabilizing the domestic economy.
10. The J curve shows a typical response of the current account balance to a drop in the exchange rate value of a country's currency.
Part III: Questions(6*6=36 score)
1. You are provided with the following information about a country's international transactions during a given year:
Service exports $ 346 Service imports $354 Merchandise exports $480 Merchandise imports $348 Income flow, net $153 Unilateral transfers, net $142
Increase in the country holding of foreign assets, net $352 (excluding official reserves assets)
Increase in foreign holding of foreign assets, net $252 (excluding official reserves assets)
Statistical discrepancy, net $154
Calculate the official settlements balance and the current account balance. Is the country increasing or decreasing its net holdings of official reserve assets? Why?
2. The following rates exist:
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浙江财经学院课程期末考试试卷
Current spot exchange rate: $1.8/￡
Annualized interest rate on 90-day dollar-denominated bonds: 8% (2% for 90 days) Annualized interest rate on 90-day pound-denominated bonds: 12% (3% for 90 days)
Financial investor expect the spot exchange rate to be $1.77/￡ in 90 days,
A)With the uncovered interest differential to make judgment that if he bases his decisions solely on the difference in the expected rate of return, should a U.S.-based investor make an uncovered investment in pound-denominated bonds rather than investing in dollar-denominated bonds? Why?
B) if there is substantial uncovered investment seeking higher expected returns, what pressure is placed on the current spot exchange rate?
3. What is the exchange rate overshooting, why does it occur?
4. Assume that a government has become committed to maintaining a fixed exchange rate that officially values foreign currencies less, and the domestic currency (here the dollar) more, than the free market equilibrium rate. The official rate is, say, $1.0 per pound sterling. This exchange controls result in considerable costs to a country whose government imposes them. Describe these costs and the role that bribery and parallel markets can play in economies with exchange controls.
Figure: Welfare Losses from Exchange Controls
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浙江财经学院课程期末考试试卷
$/￡
S￡ E
1.5 1.2
1.0 A C B D￡ ￡B
5. Use the standard IS-LM-FE framework and assume the country begins at a triple intersection under floating exchange rate. What effect will the following have on domestic interest rates, output levels, and the official settlements balance, assuming low capital mobility?(you are suggested explain with figure)
a. The central bank increases the money supply. b. The government increases its spending.
6.Explain the effects of expanding the money supply on the economy of a country with fixed exchange rates. (Assume the country begins at a triple intersection ,you are suggested explain with figure)
30 50 63.3 Part III, Reading and analysis (9 score for paper1 and 10 score for paper 2)
1: China to further reform RMB exchange rate regime (体制)
The People's Bank of China（PBOC）, China's central bank, has decided to proceed further with the reform of the Renminbi （RMB） exchange rate regime to enhance the RMB exchange rate flexibility, a spokesperson of the central bank said on Jun 19, 2010, Saturday Beijing. The decision was made in view of the recent economic situation and financial market developments at home and abroad, and the balance of payments (BOP) situation in China, the spokesperson said in a statement.
In further proceeding with the reform, continued emphasis would be placed to reflecting market supply and demand with reference to a basket of currencies. The exchange rate floating bands will remain the same as previously announced in the inter-bank foreign exchange market, the spokesman said.
The spokesperson said China's external trade is becoming more balanced. The ratio of current account surplus to GDP, after a notable reduction in 2009, has been declining since the beginning of 2010.
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